September US Nonfarm Payrolls Preview | Corporate Hiring May Become Cautious Before the Presidential Election

September nonfarm payrolls report will be released at 8:30 a.m. ET this Friday. The median forecast of analysts for the upcoming nonfarm employment is 140K, down from 142K in August. The unemployment rate is expected to remain at 4.2%.

It will take some time for the positive feedback from the Federal Reserve's interest rate cut in September to be reflected in the job market. Therefore, high interest rates may still affect the purchase of big-ticket items, including homes, motor vehicles, and furniture. As demand decreases, pricing power and profit margins have also declined, collectively impacting hiring. Additionally, the uncertainty surrounding the upcoming November elections is further dampening the outlook.

– The regional Fed’s business survey suggests manufacturing hiring activity weakened

The Federal Reserve Bank of Dallas' general business activity index for manufacturing in Texas rose to -9.7 in August of 2024 from -17.5 in the previous month, marking the lowest contraction level since January 2023. However, the employment index slipped to a near-zero reading (-0.7 vs 7.1). The divergence between business activity and hiring means that the increase in labor supply is becoming a more important factor affecting the labor market, as the labor participation rate rose to 62.7%, a level close to the pre-pandemic era.

– Job openings may stabilize in September

Indeed Job Postings Index shows job opportunities slightly increased by 0.9% on September 20th compared to the previous month, but decreased by 11.4% compared to one year ago. In terms of industries, hiring in education and construction is still hot, while the banking and tourism industries are hovering at the bottom.

Tuesday's JOLTs data showed an increasing trend in vacancies. The number of job openings rose by 329,000 to 8.040 million in August 2024 from an upwardly revised 7.711 million in July and above market expectations of 7.655 million. The number of job openings increased in construction (+138,000) and in state and local government, excluding education (+78,000). Job openings decreased in other services (-93,000).

– Some analysts warn the job market may still be overheating

Although most economists expect a weak job report, Bloomberg analyst Stuart Paul noted, “We expect a robust headline print for September nonfarm payrolls, which could even revive talk of no landing for the US economy.” The analyst expected the nonfarm payroll report will show job gains of around 270K for September, much higher than the median forecast of major economists. He pointed out that high-frequency data indicate less job shedding than usual this month, with a smaller seasonal decrease in the entertainment sectors and increased seasonal hiring in education — probably a recovery from a weak August.

Such forecasts are reasonable. As shown by the initial jobless claims, the number of people claiming unemployment benefits in the United States dropped to 218,000 on the period ending September 21st, below market expectations of a rise to 225,000, and reaching a new 4-month low. The four-week moving average of initial claims, which smooths out week-to-week fluctuations, decreased by 3,500 to 224,750.

Chart: Initial Jobless Claims, Trading Economics

– What’s the implication for the Fed?

Worries about the labor market have intensified at the Fed, with officials concentrating on the future path. If the employment reports released before the Nov. 7 FOMC meeting reveal any unexpected weaknesses, officials might be prompted to implement another significant rate cut, reflecting their readiness to aggressively address risks in the labor market.

The CME FedWatch tool shows that investors are still uncertain about whether the Federal Reserve will cut interest rates by 25 basis points or 50 basis points at the next meeting. Therefore, the next two employment data releases will be particularly crucial.

Stuart Paul said furloughs from automakers and Boeing, along with port strikes and hurricanes, are likely to result in a weak October jobs report, which is scheduled for release on Nov. 1. This may pave the way for the upcoming rate cuts by the Federal Reserve.